Wagoner: Health care is GM's top challenge

[Ming]

Wagoner: Health care is GM's top challenge
Chairman says costs account for $5 billion in expenses yearly
By Ed Garsten
The Detroit News

WILMINGTON, Del. — Despite a 24-percent boost in profits during the first quarter of the year, General Motors Corp. still faces considerable headwinds because of weak performances in its car and truck business and rising health care costs, Chairman and CEO Rick Wagoner told shareholders Wednesday.

Speaking at the automaker’s 96th annual meeting, Wagoner told 102 shareholders that health care costs now account for $5 billion in annual expenses for the automaker. The staggering health care tab, Wagoner warned shareholders, has become a huge liability for the automaker.

“We need to further strengthen our balance sheet in order to secure our ability to fund future product programs and growth opportunities,” Wagoner said.

Wagoner predicted GM would show improvement in the annual Harbour Report on manufacturing and labor productivity scheduled to be released June 11. The report is an important indicator of how efficiently an automaker runs its factories. In last year’s report, GM showed a 7 percent improvement.

During the first quarter, GM surprised financial analysts by reporting profits of $1.28 billion, with the automaker’s finance arm contributing the bulk of earnings. GM also increased its full-year earnings forecast to about $4 billion — or $7 per share.

If the automaker reaches that target, it would mark GM’s best annual earnings performance since 2000. GM has told investors it plans to earn $10 per share by mid-decade.

In New York Stock Exchange trading Wednesday, GM shares closed up 36 cents at $45.38.

Even though its global automotive operations showed a 12 percent increase in first quarter earnings compared with the first three months of 2003, GM’s North American profits slid from $548 million to $451 million. Losses widened in Europe to $116 million from $65 million last year.

GM is launching a slew of new products this year, including new minivans for Saturn, Chevrolet and Buick, an all-new Cadillac STS, and the Chevrolet Cobalt — a successor to the long-running Cavalier. GM is counting on the new models to boost sales and market share.

Several shareholders, however, were not impressed with GM’s offerings or aggressive discounts.

Former Grosse Point resident Lucy Kessler, who now raises race horses in Mt. Airy, Md., chided Wagoner for complicated incentive programs that backfire by confusing customers and berated the style of GM’s product lineup.

“I implore you to offer value, elegance, affordability,” Kessler said.

Full Article Here


Rising health care costs:

[Canuck]

It is an interesting read. In Canada Health Care is a national plan much like European countries and Japan. The issue in Canada is waiting for health care like elective surgery whereas in the US it is having the money to pay for surgery if you are not covered. Back to GM Wagoner is correct in his statements but long term the UAW and GM's work force should pay close attention to what Wagoner is saying. If the US government gets more involved companies will benefit but taxpayers will end up paying more than they do now for the same service.

[Ming]

Obviously GM would like to offload the cost onto taxpayers.

A lot of problems here.

One is that when I lived in Japan, the health care was ancient and outmoded, using 20 year old drugs and old green cast iron equipment from the 1950s.

The other problem is we have drug companies advertising new drugs like fast food. "Do you have this problem? Go see your doctor and ask for Wonder Drug!"

Third is that as you mention it would be costly to taxpayers to implement a Socialist Utopian health care scheme.

I'm not sure there is an easy solution, but for GM, passing the burden to someone else makes sense.

[usa1]

It's sad that GM think's their biggest challenge is health care. How about gaining marketshare with superior products that don't need huge incentive? Figure that one out and hearth care falls down the list rapidly.

I don't want to trivialize the health care issue, but a company that is growing in volume/sales has a much healthier balance sheet than one that is holding/contracting.

This all comes back to product, quality, and costs. If GM can make high quality products that are priced right AND that are superior to its competitors, it will do fine long term. GM is still average on quality overall. It has some products that are great, but too many of them are average. You don't gain market share with average products.

Mark

[saugatak]

Healthcare is GM's biggest problem. People are living longer because there are more expensive drugs/procedures/technology and GM has to foot the bill.

It's tough to compete in the fiercely competitive automarket when you're $5 billion in the hole.

[stewacide]

The Big Three are in a real pickle. They can't afford to employ union people in the US anymore, but they can't afford to fire them either because they have to pay benefits anyways.

As mentioned when a car company's #1 challenge isn't building superior cars at lower prices the market has broken down. The government really needs to step in and fix this mess so that the Detroit makers can compete on a level playingfield.

[paul8488]

Originally posted by stewacide@Jun 4 2004, 03:41 PM
As mentioned when a car company's #1 challenge isn't building superior cars at lower prices the market has broken down.

ah, very good point. usa1 is right, but so are saugatak and stewacide. product SHOULD be the number one concern, but they're so hampered by healthcare costs that they can't focus the way they need to. yet the seems to be doing a better job than even a few years. with the next impala and full-size pickups, most of GM's lineup will be recently freshened and generally competitive. still, the healthcare costs won't go away. they'll have to get leaner and meaner with future product design.